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IAS 37Workpapers (Step 4 of 5)

Workpaper template

Step 4 of 5
WorkpaperIAS 37 — Provisions, Contingent Liabilities and Contingent AssetsL2 · L3 · L4

Provisions roll-forward

10 missions11 sections to document45 min
Prepared by
AI-assisted draft
Reviewed by
Not reviewed — human review required
Status
Published

Objective of the workpaper

For a class of provisions, calculate the unwinding of the discount, revise the best estimate at the reporting date (additional provision or reversal), charge the amounts used, determine the reimbursement asset, reconcile the roll-forward with the ledger balance, record the entries and pass the items of the note.

11 sections · 34 blocks · 7 calculations · 6 entries

  • IAS 37 §53
  • IAS 37 §54
  • IAS 37 §55
  • IAS 37 §56
  • IAS 37 §57
  • IAS 37 §59
  • IAS 37 §60
  • IAS 37 §61
  • IAS 37 §62
  • IAS 37 §84
  • IAS 37 §85
  • IAS 37

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

10 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Restoration of a quarry site: best estimate, discounting, unwinding and revision
Case tasks documented here
  • Calculate the unwinding of the discount for 20X1.
  • Revise the provision at 31 December 20X1: is an additional provision or a reversal needed?
  • Prepare the movement schedule of the provision and reconcile it with the general ledger.
  • Record the unwinding and utilisation entries for 20X1.
1

Inputs

Inputs

  • Class of provisions (nature of the obligations, expected timing of outflows)

    TextRequired

    SITE_RESTORATION

  • Carrying amount at the beginning of the period

    NumberRequired

    550,000

  • Discounted part of the opening provision (equal to the opening balance if the whole class is discounted)

    Number

    550,000

  • Pre-tax discount rate applied at the beginning of the period (%)

    Number

    8 %

  • Amounts used (expenditures incurred and charged against the provision)

    Number

    54,000

  • Current best estimate, at the reporting date, of the obligations existing at the beginning of the period

    NumberRequired

    540,000

    Management estimate (“Measurement of the provision”). If the discount rate changes, the revision includes its effect; this model presents it with the revision and the note shows it separately (para. 84).

  • Provisions made for new obligations of the period

    Number

  • Closing balance of the provision account (trial balance)

    NumberRequired

    540,000

2

Supporting evidence

Evidence

  • Evidence obtained and referenced (category, document reference)

    EvidenceRequired

3

Revision and use

Analysis

IAS 37 §59IAS 37 §60IAS 37 §61IAS 37 §62

  • Points examined

    ChecklistRequired

    • Provision reviewed at each reporting date and adjusted to the current best estimate
    • Reversal when the outflow of resources is no longer probable
    • Increase due to the passage of time recognised as a borrowing cost
    • Only expenditures for which the provision was originally recognised are set against it
4

Reimbursements

Analysis

IAS 37 §53IAS 37 §54IAS 37 §55IAS 37 §56IAS 37 §57

  • Virtually certain reimbursement expected from a third party (insurance, indemnity, supplier warranty; 0 if not virtually certain)

    Number

  • Amount of the provision to which the reimbursement relates

    Number

  • Points examined

    Checklist

    • Reimbursement recognised only when virtually certain to be received if the entity settles the obligation
    • Separate asset, whose amount cannot exceed that of the provision
    • Expense relating to the provision presented net of the reimbursement recognised (option)
    • Entity liable for the full amount if the third party fails to pay: provision for the full amount and separate asset if the reimbursement is virtually certain
    • Entity not liable for the costs if the third party fails to pay: costs excluded from the provision
5

Movements of the period and reimbursement

Calculations

IAS 37 §53IAS 37 §54IAS 37 §59IAS 37 §60IAS 37 §84

  • Unwinding of the discount for the period (discounted opening part × rate)

    Calculation

    44,000

    Discounted part of the opening provision (equal to the opening balance if the whole class is discounted) ; Pre-tax discount rate applied at the beginning of the period (%)

    Teaching assumption: constant rate over the period and calculation on the discounted part of the opening provision; new provisions of the period are not unwound in this model.

  • Additional provision (best estimate − carrying amount before revision, if positive)

    CalculationRequired

    0

    Current best estimate, at the reporting date, of the obligations existing at the beginning of the period ; − Carrying amount at the beginning of the period ; − Unwinding of the discount for the period (discounted opening part × rate) ; Amounts used (expenditures incurred and charged against the provision)

    Carrying amount before revision = opening + unwinding − amounts used; the difference with the current best estimate is an additional provision or a reversal (para. 59). Which standard does what: IAS 37 sets the revised amount of the provision; for a decommissioning obligation whose initial cost was included in an asset under IAS 16, the other side of this subsequent change falls under IFRIC 1, outside this template (IAS 16 / IFRIC 1 interaction — reading adopted in this course).

  • Unused amounts reversed (carrying amount before revision − best estimate, if positive)

    CalculationRequired

    0

    Current best estimate, at the reporting date, of the obligations existing at the beginning of the period ; − Carrying amount at the beginning of the period ; − Unwinding of the discount for the period (discounted opening part × rate) ; Amounts used (expenditures incurred and charged against the provision)

  • Carrying amount at the end of the period (opening + additions − amounts used − reversals + unwinding)

    CalculationRequired

    540,000

    Carrying amount at the beginning of the period ; Provisions made for new obligations of the period ; Additional provision (best estimate − carrying amount before revision, if positive) ; − Amounts used (expenditures incurred and charged against the provision) ; − Unused amounts reversed (carrying amount before revision − best estimate, if positive) ; Unwinding of the discount for the period (discounted opening part × rate) ; Closing balance of the provision account (trial balance)

  • Difference with the ledger balance (trial balance − recalculated closing)

    Calculation

    0

    Carrying amount at the beginning of the period ; Provisions made for new obligations of the period ; Additional provision (best estimate − carrying amount before revision, if positive) ; − Amounts used (expenditures incurred and charged against the provision) ; − Unused amounts reversed (carrying amount before revision − best estimate, if positive) ; Unwinding of the discount for the period (discounted opening part × rate) ; Closing balance of the provision account (trial balance)

  • Reimbursement asset (lower of the virtually certain reimbursement and the provision)

    Calculation

    Virtually certain reimbursement expected from a third party (insurance, indemnity, supplier warranty; 0 if not virtually certain) ; Amount of the provision to which the reimbursement relates

  • Net expense relating to provisions if the option is taken (additions − reversals − reimbursement recognised)

    Calculation

    0

    Provisions made for new obligations of the period ; Additional provision (best estimate − carrying amount before revision, if positive) ; − Unused amounts reversed (carrying amount before revision − best estimate, if positive) ; − Reimbursement asset (lower of the virtually certain reimbursement and the provision)

    Presentation option (para. 54): the expense may be presented net of the reimbursement recognised. The unwinding, a borrowing cost (para. 60), is not included.

6

Journal entries

Entries

  • New provisions of the period

    Entry

    Debit Provision expense ← Provisions made for new obligations of the period ; Credit Provision ← Provisions made for new obligations of the period

  • Additional provision

    Entry

    Debit Provision expense ← Additional provision (best estimate − carrying amount before revision, if positive) ; Credit Provision ← Additional provision (best estimate − carrying amount before revision, if positive)

  • Unwinding of the discount

    Entry

    AccountDebitCredit
    Borrowing cost (finance cost)44,000
    Provision44,000

  • Use of the provision

    Entry

    AccountDebitCredit
    Provision54,000
    Cash54,000

    Teaching assumption: the expenditures charged against the provision are paid in cash; adapt the credit side if they are still owed to third parties.

  • Reversal of the provision

    Entry

    Debit Provision ← Unused amounts reversed (carrying amount before revision − best estimate, if positive) ; Credit Provision expense (reversal) ← Unused amounts reversed (carrying amount before revision − best estimate, if positive)

  • Reimbursement asset

    Entry

    Debit Reimbursement receivable ← Reimbursement asset (lower of the virtually certain reimbursement and the provision) ; Credit Reimbursement income ← Reimbursement asset (lower of the virtually certain reimbursement and the provision)

    Teaching assumption: the reimbursement is credited to a separate income account; presenting the expense net (para. 54) is a presentation option, with no effect on the separate asset.

7

Reimbursement and classes

Judgment

IAS 37 §53IAS 37 §56IAS 37 §57IAS 37

  • Treatment of the expected reimbursement

    JudgmentRequired

    No reimbursement expected

    Virtually certain: separate asset capped at the amount of the provision / Not virtually certain: no asset recognised / Entity not liable if the third party fails to pay: costs excluded from the provision / No reimbursement expected

    Professional judgement documented from the facts of the case (terms of the insurance or indemnity contract, position of the third party, for example); this model puts no figure on virtual certainty.

  • Rationale: facts relied on, analysis, alternative rejected

    TextRequired

  • Grouping into a class

    JudgmentRequired

    A single class (sufficiently similar nature)

    A single class (sufficiently similar nature) / Separate classes (different natures)

  • Rationale: facts relied on, analysis, alternative rejected

    TextRequired

8

Conclusion

Conclusion

  • Reconciled roll-forward, reimbursement asset and closing entries

    ConclusionRequired

9

Financial statement impact

FS impact

  • Impact by caption, derived from the entries above (the Notes line refers to the disclosures)

    TableRequired

10

Items passed to the note

Disclosure

IAS 37 §84IAS 37 §85

  • Items passed to the notes workpaper (“Note: provisions and contingencies”)

    ChecklistRequired

    • Carrying amount at the beginning and end of the period
    • Additional provisions made, including increases to existing provisions
    • Amounts used
    • Unused amounts reversed
    • Increase due to the passage of time and effect of any change in the discount rate
    • Comparative information not required for this reconciliation
    • Nature, expected timing, uncertainties and major assumptions
    • Expected reimbursement and amount of the asset recognised for it
11

Normative references

References

  • Paragraphs cited in this workpaper (verification status shown from the register)

    References

12

Checks and financial statement impact

  • The closing carrying amount is recalculatedPass
  • The roll-forward agrees with the ledger balancePass
  • The treatment of the reimbursement is documentedPass
  • The grouping into a class is documentedPass
  • The new provisions entry is balancedNot evaluated
  • The additional provision entry is balancedNot evaluated
  • The unwinding entry is balancedPass
  • The use entry is balancedPass
  • The reversal entry is balancedNot evaluated
  • The reimbursement entry is balancedNot evaluated
Assets
-54,000
Liabilities
-10,000
Profit or loss
-44,000
OCI
0
Equity
-44,000